AD Banker Property Basics

Question 1

During a tornado, a factory is destroyed when the roof blows off, causing electrical wires to short and start a fire, burning down the building. The proximate cause of the loss is:

A
Hail

B
Electrical wires

C
Tornado

D
Fire

Answer 1

C (The proximate cause is the first event in an unbroken chain of events that caused the loss. Had it not been for the tornado, the building would not have burned down.)

Question 2

Which term describes the situation that occurs when two policies covering the same property contain different policy periods?

A
Coinsurance

B
Blanket coverage

C
Nonconcurrency

D
Concurrent causation

Answer 2

C (A policy is nonconcurring with another policy when its policy period does not overlap exactly.)

Question 3

The loss of property when the cause of loss is not known is considered:

A
Theft

B
Mysterious disappearance

C
Burglary

D
Robbery

Answer 3

B (This is considered a mysterious disappearance.)

Question 4

The location of the insured risk can be found in which part of an insurance policy?

A
The Conditions

B
The Insuring Agreement

C
The Declarations

D
The Definitions

Answer 4

C (The function of the Declarations is to apply the common policy to a specific insured and property. The risk location, therefore, is found in the Declarations.)

Question 5

K owns several buildings at different locations with each one insured on a separate policy. Which of the following methods of writing insurance does this describe?

A
Agreed Value

B
Scheduled

C
Specific Limit

D
Blanket

Answer 5

C (Since each property is covered under a separate policy, each with a unique coverage limit, each property is written on a specific limit basis. A loss to any one property would not affect the policies covering the other properties.)

Question 6

The concealment and fraud condition in a property insurance policy states:

A
The policy will be voided if there is material concealment, misrepresentation, or fraud on the insured’s part

B
The insured must cooperate with the company in the investigation of a claim

C
Making a false statement regarding a claim does not constitute fraud

D
The company will not grant any coverage that benefits a bailee

Answer 6

A (The Concealment or Fraud condition voids coverage in cases of concealment, false statements, misrepresentation, and fraudulent conduct.

)

Question 7

Actual cash value may be defined as:

A
The cost to replace or repair the property

B
The agreed upon specific value determined before the policy was issued

C
The original purchase price of property, minus depreciation

D
The cost to replace or repair property, minus depreciation

Answer 7

D (Actual cash value is the cost to repair or replace (replacement cost), minus depreciation.)

Question 8

The transfer of the right of recovery from the insured to the insurance company is called:

A
Hold harmless

B
Subrogation

C
Indemnity

D
Assignment

Answer 8

B (Subrogation allows the insurer to take legal action against the negligent third party.)

Question 9

The part of a property policy that gives basic information such as the named insured, a description of the property, the location of the property, and the amount of premium involved, is known as the:

A
Insuring Agreement

B
Policy Provisions

C
Declarations

D
Conditions

Answer 9

C (The Declarations contain the information that is specific to the individual and property being insured.)

Question 10

An insured owns a home with a replacement cost of $300,000 and a market value of $250,000. What is the most a valued policy will pay in the event of a total loss without a deductible?

A
$300,000

B
The policy limit

C
$240,000

D
$250,000

Answer 10

B (A total loss under a valued policy is payable based on the policy limit listed on the declarations page.)

Question 11

Which of the following is not true about an insurance policy?

A
The insuring agreement includes the name of the insured

B
A deductible is a specified amount of loss that is retained by the insured

C
An insurance policy that pays before all other coverage is called primary coverage

D
An application is a document that provides information for underwriting purposes

Answer 11

A (The Insuring Agreement contains the insurer’s promises to the insured. The insured’s name is found in the Declarations.)

Question 12

Which of the following best defines short rate cancellation?

A
The insured will receive less than the full amount of the unearned premium

B
The insured will receive exactly half of the unearned premium

C
The insured will receive none of the unearned premium

D
The premium is fully earned by the insurance company

Answer 12

A (With short rate cancellation, the premium refund is based upon a short rate table in which the insurer retains a portion of the unearned premium.)

Question 13

The rules and procedures to be followed by the insured and the insurer are found in which section of an insurance policy?

A
Conditions

B
Declarations

C
Definitions

D
Insuring Agreement

Answer 13

A (The rules and procedures to be followed by the insurer and insured throughout the policy period are found in the Conditions.)

Question 14

What is the ONLY policy section that may change or be different for each customer?

A
The Exclusions

B
The Declarations

C
The Conditions

D
The Insuring Agreement

Answer 14

B (The Declarations is specific to each property insured under a policy.)

Question 15

Which of the following statements regarding types of property loss is false?

A
A direct loss is a loss resulting directly from a peril insured against

B
Direct losses include additional living expenses

C
Fire damage to an insured home is considered a direct loss from a fire

D
An indirect loss is the same as a consequential loss

Answer 15

B (Additional living expenses are an indirect loss, not a direct loss.)

Question 16

Which property insurance condition states that a suit may not be filed by the insured against the insurer under certain circumstances?

A
Legal Action Against Us

B
Claim settlement

C
Ordinance or Law

D
Loss Payment

Answer 16

A (Unless all terms of the policy have been complied with by the insured, the insured cannot file suit against the insurer. An insured cannot ignore his/her responsibilities under the policy, then subsequently bring legal action against the insurer.)

Question 17

X’s neighbor shoots off fireworks on July 4th and puts the shells in X’s trash can, causing a fire and damaging X’s garage. X’s company pays the loss and contacts the neighbor for reimbursement. This is an example of:

A
Reimbursement

B
Subrogation

C
Appraisal

D
Loss Settlement

Answer 17

B (Subrogation rights apply when negligent third party is the cause of a loss. Since the insurance company has paid the loss, it is granted the insured’s right to recover payment from the third party.)

Question 18

The taking of property from inside the premises by a person committing forcible entry defines a:

A
Borrowing

B
Burglary

C
Robbery

D
Mysterious disappearance

Answer 18

B (Burglary is the taking of property from inside the premises or a locked safe or vault using visible force of entry or exit.)

Question 19

Which of the following is not included in the Declarations of a Property Policy?

A
The perils that are not insured against

B
The expiration date of the policy

C
The amount of premium

D
The amount of coverage

Answer 19

A (The perils not covered are listed in the Exclusions.)

Question 20

The location of the insured risk can be found in which part of an insurance policy?

A
The Definitions

B
The Conditions

C
The Declarations

D
The Insuring Agreement

Answer 20

C (The function of the Declarations is to apply the common policy to a specific insured and property. The risk location, therefore, is found in the Declarations.)

Question 21

Which type of construction material has a fire-resistance rating between one and two hours for walls, floors and roofs?

A
Modified fire-resistive

B
Fire Resistive

C
Joisted Masonry

D
Non-Combustible

Answer 21

A (To be classified Modified Fire Resistive, the materials used in the walls, floors, and roof of a structure must have a fire resistive rating of at least 1 hour, but less than 2 hours.)

Question 22

The Additional Coverages part of a property insurance policy provides:

A
The company the right to voluntarily waive the deductible

B
The insured the right to request additional coverage to supplement the policy after paying an additional premium

C
Coverage that supplements the basic coverages in the insuring agreement which is automatically included without an additional premium

D
The insured the right to request that extra coverage be provided by endorsement

Answer 22

C (Additional coverages are automatically included in property policies without an additional premium. The type of additional coverages depends upon the type of policy. Additional coverages are paid in addition to those stated in the insuring agreement and include debris removal, collapse, and fire department service charges.)

Question 23

Which of the following constitutes the acceptance of an offer?

A
When the agent assures the applicant he or she will be covered

B
When the applicant completes the application

C
When the insurer makes a counteroffer

D
When an insurer issues a binder

Answer 23

D (The issuance of a binder is indication of the acceptance of an offer.)

Question 24

When a building has physical contents but no occupants, the building is said to be:

A
Suspended

B
Uninhabited

C
Unoccupied

D
Vacant

Answer 24

C (A vacant building is a building that contains neither contents nor occupants. An unoccupied building is a building that contains furnishings or equipment, but has no occupants.)

Question 25

Which of the following constitutes the acceptance of an offer? A When an insurer issues a binder B When the insurer makes a counteroffer C When the agent assures the applicant he or she will be covered D When the applicant completes the application

Answer 25

A (The issuance of a binder is indication of the acceptance of an offer.)

Question 26

What is the term for continuous exposure to the same harmful conditions? A Risk B Occurrence C Accident D Proximate cause

Answer 26

B (An occurrence is an accident that includes continuous or repeated exposure to the same general harmful conditions.)

Question 27

Which of the following statements about a property policy is false? A The coinsurance clause makes the policy more costly B Named perils policies cover only stated perils C Open perils policies cover all perils, except those excluded D The purpose of coinsurance is to encourage the insured to carry insurance to value

Answer 27

A (Generally, the higher the coinsurance, the lower the rate.)

Question 28

An insured owns a home with a replacement cost of $300,000 and a market value of $250,000. What is the most a valued policy will pay in the event of a total loss without a deductible? A The policy limit B $250,000 C $240,000 D $300,000

Answer 28

A (A total loss under a valued policy is payable based on the policy limit listed on the declarations page.)

Question 29

Which of the following most accurately describes the abandonment condition? A Abandoned property must be protected from further damage B The insured must make reasonable and necessary repairs to protect the property C The insured cannot abandon damaged property to the insurer D The insured must cooperate with the company in the investigation of a claim

Answer 29

C (The abandonment clause provides that the company will not accept property abandoned by an insured when there is a claim dispute.)

Question 30

A building with no physical contents and no occupants is said to be which of the following? A Undetermined occupancy B Suspended occupancy C Unoccupied D Vacant

Answer 30

D (A vacant building is a building that contains neither contents (personal property) nor occupants. An unoccupied building is a building that contains personal property, but has no occupants.)

Question 31

All of the following statements regarding a property policy are correct, except: A The conditions describe the responsibilities and obligations of the insurer and the insured B The insuring agreement personalizes the policy, specifying the exact property being insured C An indirect loss is an additional loss that results from a direct loss D A deductible is a portion of a loss that an insured must bear

Answer 31

B (The Declarations personalize the policy. The insuring agreement is written without regard to the precise location and value of the insured property.)

Question 32

When a loss occurs as a result of two perils, one of which is excluded and the other of which is insured against, the situation is known as: A Supplemental Causation B Proximate Causation C Bilateral Causation D Concurrent Causation

Answer 32

D (Concurrent Causation is the legal doctrine that states that when a property loss is due to two causes, one that is excluded and one that is covered, the loss is covered.)

Question 33

Which of the following is not true about an insurance policy? A An application is a document that provides information for underwriting purposes B The insuring agreement includes the name of the insured C An insurance policy that pays before all other coverage is called primary coverage D A deductible is a specified amount of loss that is retained by the insured

Answer 33

B (The Insuring Agreement contains the insurer's promises to the insured. The insured's name is found in the Declarations.)

Question 34

Which of the following is not a condition found in an insurance policy? A Liberalization B Assignment C Insuring Agreement D Subrogation

Answer 34

C (The Insuring Agreement is a Section of the policy, separate and distinct from the policy conditions.)

Question 35

Which of the following is true about the right of salvage? A The insurer is required to take possession of damaged property after a loss B The insured has the right to keep damaged property after payment of a loss C The insurer has the right to take possession of damaged property after payment of a loss D Damaged property must be disposed of after a loss.

Answer 35

C (After payment for loss, the insurer has the right to salvage damaged property.)

Question 36

Which of the following is true of the Insuring Agreement? A It provides the policy conditions B The promise to indemnify an insured for a covered cause of loss C It provides the name and address of the insured and the name of the insurer D It lists the policy premium amount

Answer 36

B (The insuring agreement is the company's commitment (promise) of protection to the insured. It specifies the types of property covered, and the perils insured against.)

Question 37

Which of the following is stated in the insuring agreement? A The Other Insurance provision B The perils insured against C The location of insured property and the named insured's mailing address D The perils excluded by the policy

Answer 37

B (The insuring agreement states the insurance company's promise to pay the insured, including the exact perils insured against by the policy.)

Question 38

K owns several buildings at different locations with each one insured on a separate policy. Which of the following methods of writing insurance does this describe? A Blanket B Specific Limit C Agreed Value D Scheduled

Answer 38

B (Since each property is covered under a separate policy, each with a unique coverage limit, each property is written on a specific limit basis. A loss to any one property would not affect the policies covering the other properties.)

Question 39

Which of the following is considered a hostile fire? A The fire in a trashcan being used to burn leaves B A fireplace containing a roaring wood fire C The fire in the firebox of a furnace D An uncontrolled campfire in the woods

Answer 39

D (Fire insurance is intended to insure against uncontrolled or hostile fires. Friendly fires, which are those fires that are confined to their intended place, are not subject to coverage.)

Question 40

Which of the following clauses protects the interests of the loss payee? A Abandonment clause B Loss payable clause C Mortgagee clause D Loss settlement clause

Answer 40

B (The loss payable clause protects the interests of a person or business with insurable interest in the insured's property (known as a 'loss payee'), such as a financial institution who finances an auto loan.)

Question 41

Which of the following is true about binders? A The premium amount is not stated in a binder B A binder always expires 15 days after its inception date C A binder will not end when the policy is issued D A binder does not name the company providing coverage

Answer 41

A (A binder is a legal agreement that serves to effect insurance coverage temporarily until the actual insurance policy can be issued. It contains only the essential coverage information, except the premium amount.)

Question 42

The Additional Coverages part of a property insurance policy provides: A Coverage that supplements the basic coverages in the insuring agreement which is automatically included without an additional premium B The insured the right to request that extra coverage be provided by endorsement C The insured the right to request additional coverage to supplement the policy after paying an additional premium D The company the right to voluntarily waive the deductible

Answer 42

A (Additional coverages are automatically included in property policies without an additional premium. The type of additional coverages depends upon the type of policy. Additional coverages are paid in addition to those stated in the insuring agreement and include debris removal, collapse, and fire department service charges.)

Question 43

When coverage applies to a property loss by all perils except those specifically excluded, the policy is written on which basis? A Agreed Value B Valued Policy C Named Perils D Open Perils

Answer 43

D (The Open Perils policy covers all risks of that are not expressly excluded, rather than enumerating the perils being insured against.)

Question 44

If a fire burns the home and property of an insured, what must the insured provide? A Proof that they called the fire department B Pictures of the damage C Receipt for the fire extinguisher in the garage D An inventory of the damaged property

Answer 44

D (Preparing an inventory of the damaged property is one of the Duties in the Event of Loss under the Conditions section of a policy.)

Question 45

The promise to indemnify an insured for a covered cause of loss B It provides the policy conditions C It provides the name and address of the insured and the name of the insurer D It lists the policy premium amount

Answer 45

A (The insuring agreement is the company's commitment (promise) of protection to the insured. It specifies the types of property covered, and the perils insured against.)

Question 46

When the insurance company and insured cannot agree upon the amount of the loss, the person selected to help the two hired appraisers is called a(n): A Umpire B Agent C Adjuster D Claim representative

Answer 46

A (Both the insurance company and insured's representatives (usually appraisers) will select a third person to serve as an umpire. If the two appraisers fail to agree on the appraisal, they will submit their differences to the umpire, and an agreement of any two of the three will set the amount of the loss.)

Question 47

The insuring agreement of a policy describes: A Transfer of the rights of recovery B The duties of the insured in the event of a loss C Perils that are covered D Perils that are not covered

Answer 47

C (The Insuring Agreement includes the perils insured against. The duties of the insured and the transfer of recovery rights (subrogation) would be included in the policy's conditions. Excluded perils would be listed in the Exclusions section.)

Question 48

Which type of construction material has a fire-resistance rating between one and two hours for walls, floors and roofs? A Non-Combustible B Fire Resistive C Modified fire-resistive D Joisted Masonry

Answer 48

C (To be classified Modified Fire Resistive, the materials used in the walls, floors, and roof of a structure must have a fire resistive rating of at least 1 hour, but less than 2 hours.)

Question 49

The standard policy structure for insurance policies includes all of the following sections, except: A Conditions B Insuring agreement C Exclusions D Duties

Answer 49

D (The duties of the insured and the insurer are found in the policy conditions.)

Question 50

All of the following statements regarding coinsurance are true, except: A Coinsurance applies only in the event of a partial loss B The coinsurance clause increases the policy's deductible amount C The purpose of coinsurance is to encourage one to carry insurance to value D The higher the coinsurance percentage, the lower the premium

Answer 50

B (The purpose of coinsurance is to encourage one to carry insurance to value. It has no impact on the deductible.)

Question 51

Which part of a property insurance policy describes the perils? A Additional Coverages B Declarations C Insuring Agreement D Definitions

Answer 51

C (The Insuring Agreement is the company's commitment to protect the insured and includes a description of the perils.)

Question 52

Which of the following methods of writing insurance is used to provide insurance on properties at different locations, using a single policy, and a single limit of insurance?

Answer 52

A (Blanket insurance covers more than one item of property on one policy for a single amount of insurance, which applies to each item as needed.)

Question 53

All of the following are insured's duties after a loss under a property policy, except: A Submitting to examination by insurer B Giving notice of loss as soon as possible C Abandoning the property to the insurer D Furnishing inventory of damaged property

Answer 53

C (The insured may not abandon property to the insurer.)

Question 54

Construction material having a fire-resistance rating between 1 and 2 hours for walls, floors, and roofs is classified as: A Fire Resistive B Modified Fire Resistive C Joisted Masonry D Noncombustible

Answer 54

B (Modified Fire Resistive construction has a fire-resistance rating of at least 1 hour, but less than 2 hours. To be considered Fire Resistive, the building and roof must be constructed of reinforced concrete and steel and have a fire-resistance rating of at least 2 hours. Joisted Masonry construction includes exterior walls of masonry or fire-resistive construction rated for no less than 1 hour and with combustible floors and roofs.)

Question 55

Which property insurance condition states that a suit may not be filed by the insured against the insurer under certain circumstances? A Claim settlement B Loss Payment C Legal Action Against Us D Ordinance or Law

Answer 55

C (Unless all terms of the policy have been complied with by the insured, the insured cannot file suit against the insurer. An insured cannot ignore his/her responsibilities under the policy, then subsequently bring legal action against the insurer.)

Question 56

All of the following are insured's duties after a loss under a property policy, except: A Submitting to examination by insurer B Furnishing inventory of damaged property C Giving notice of loss as soon as possible D Abandoning the property to the insurer

Answer 56

D (The insured may not abandon property to the insurer.)

Question 57

The insured is not required to do which of the following in the event of a property claim? A Protect property from further damage B Cooperate with the insurance company C Notify police, whether or not a law has been broken D Give notice of loss as soon as possible

Answer 57

C (The police only need to be notified if a loss is result of theft or other criminal activity.)

Question 58

Which of the following is the broad term for an accident that also includes a continuous and repeated exposure? A Occurrence B Disaster C Exposure D Incident

Answer 58

A (An occurrence is an event that results in a loss. While it includes accidents, the loss need not be sudden.)

Question 59

All of the following statements about binders are true, except: A A binder specifies the effective date of coverage and amount of coverage B A binder specifies the insurer providing the coverage C A binder specifies the perils covered D A binder specifies the premium amount

Answer 59

D (A binder does not specify the premium amount. The Declarations of an actual policy would include the premium.)

Question 60

When firefighters extinguish a house fire with water, the water damage is considered a(n): A Consequential Loss B Indirect loss C Direct loss D Loss that will be subrogated to the fire department

Answer 60

C (Water damage is a direct loss to the property.)

Question 61

An insured owns a home with a replacement cost of $300,000 and a market value of $250,000. What is the most a valued policy will pay in the event of a total loss without a deductible? A $300,000 B $240,000 C $250,000 D The policy limit

Answer 61

D (A total loss under a valued policy is payable based on the policy limit listed on the declarations page.)

Question 62

Which of the following parties may assign a standard property policy? A The insurer B The insured with prior written permission of the insurer C The bailee D The first named insured

Answer 62

B (The insured can only assign or transfer rights of ownership with prior written consent of the insurer.)

Question 63

Which of the following is not found on the Declarations Page? A Exclusions B Limit of liability C Insured property address D Expiration date of the policy

Answer 63

A (The Declarations Page contains the information necessary to tailor the policy to the individual and property insured. The exclusions are found in the Exclusions section of the policy and coverage forms.)

Question 64

Which insurance provision prevents the insured from collecting twice for the same loss? A Other insurance B Subrogation C Liberalization D Appraisal

Answer 64

B (Subrogation may take place when a negligent third party is the cause of a loss. Once the insurance company has paid the loss, it receives the insured's right of recovery from the third party, preventing the insured from collecting from both the insurer and the culpable party.)

Question 65

A building with no physical contents and no occupants is said to be which of the following? A Suspended occupancy B Unoccupied C Vacant D Undetermined occupancy

Answer 65

C (A vacant building is a building that contains neither contents (personal property) nor occupants. An unoccupied building is a building that contains personal property, but has no occupants.)